If you want to enter the exit, you must know that the opportunity brings a lot of risk. Export documentary credits are one of the effective risk management tools used by seasonal exporters.
Advantages of exporting documentary credits
First, it can help you minimize the risk of customers not paying. If you issue a documentary credit, your customer bank must pay you when you show the document.
Second, using this feature allows you to withdraw funds from your company's credit line. Simply present the required documents to the bank. If these documents do not complain, your bank will provide you with a prepayment after your documents have been accepted.
Choosing the right bank is important to you because it helps ensure that you avoid issues related to document compliance.
Who needs a documentary credit?
Companies that want to minimize the risk of non-payments - can actually control business documents by using bank channels.
Exporters and customers are unable or unwilling to provide documentary credits
Companies that need to process documents quickly and resolve payment issues
The company wants to offer buyers a very flexible credit period without having to compromise their status without paying.
How does this work?
You and your buyer must first agree to use this solution as a payment method. Both of you must sign a contract. After this, your buyer must apply for a documentary credit. On the other hand, banks need to determine if your buyer is reliable and qualified. When the bank's requirements are met, it will provide a documentary credit. This file will be forwarded to your bank.
When your bank receives these files, it needs to authenticate the files and make sure they meet the terms and conditions. Your bank will also notify you that you have received a documentary credit. On the other hand, you must check that the documents meet the requirements in your contract with the buyer. If there is a discrepancy, you must ask the buyer to resolve such issues.
You can then send the buyer's order and present the required documents to the bank. Your bank needs to verify these documents and forward them to your buyer's bank to request a payment.
Finally, the buyer's bank must check these documents. After that, it will forward the payment to your bank.
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